Business Economics

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Business Economics

Question 1
a. Data for HDB Resale Price Index and Property Price Index
(Thakur, 2014)
PRICE INDEX FROM 1st QUARTER 2010 TO 4th QUARTER 2013
PVT-PROPERTY PRICE
HDB-RESALE PRICE INDEX

YEAR

INDEX

QUARTER
% CHANGE FROM
INDEX

% CHANGE FROM
INDEX

PREVIOUS QTR

PREVIOUS QTR

100.00

100.00

II

104.06

4.06%

104.52

4.52%

III

108.26

4.03%

107.34

2.70%

IV

110.97

2.50%

110.17

2.63%

112.77

1.63%

112.99

2.56%

II

116.32

3.15%

115.25

2.00%

2010

2011

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III

120.77

3.83%

117.51

1.96%

IV

122.84

1.71%

118.08

0.48%

123.61

0.63%

116.95

-0.96%

II

125.16

1.25%

117.51

0.48%

III

127.68

2.01%

119.21

1.44%

IV

130.90

2.53%

121.47

1.90%

132.58

1.28%

122.60

0.93%

II

133.29

0.54%

123.16

0.46%

III

132.13

-0.87%

120.90

-1.83%

IV

130.13

-1.51%

118.64

-1.87%

2012

2013

Brief History of Housing in Singapore

Prior the establishment of HDB (Housing Development Board) i.e. before 1960, there is a
housing crisis in Singapore. At that time, many were living in unhygienic slums & crowded
squatter settlements. Only 9% of Singaporeans lived in government flats (Thakur, 2014).
HDB was assigned the task to solve nation housing crisis, HDB built 21,000 flats in less than
three years (Thakur, 2014). By 1965, it had built 54,000 flats & within 10 years of its formation

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it overcomes the housing problem (Thakur, 2014). Currently more than 80% of Singapores
resident population lives in HDB flat.
Prevailing Trend
Singapores home ownership rate is highest in the world. The figure for resident households was
90.5% in 2013, up from 58.8% in 1980 (Thakur, 2014). The government of Singapore truly
facilitates to provide affordable housing to every citizen through various means such as rules &
regulations to curb speculation gains, providing housing grants, allowing buyers to use
accumulated government pension contribution for purchases.
Due to low interest rates, foreign speculators invested in housing property, as a result housing
prices starts soaring from 2006. The Government tightens lending & forbid developer from
absorbing interest, taxed speculators & placed levies as high as 15% on foreign buyers &
imposed mortgage restrictions.
Government policy has cut the growth in outstanding mortgage loans to 7.5%, the lowest since
June, 2007 (Thakur, 2014). Resale volumes of public housing have declined by 63% from a peak
in May, 2010, where 3,649 units were sold (Thakur, 2014). As reflected in the table above the
resale prices for HBD flats dropped 0.9% in third quarter & 1.5% in fourth quarter of 2013
(Thakur, 2014).
The private property also plunged as its biggest source of buyers i.e HDB home owners stuck in
government housing. Private home sales dropped 56% in first half of 2014 as compared with
same period of 2013 (Thakur, 2014).

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Now, we come back to our table, It shows the downward sloping trend of growth rates of both
HDB & private houses. The growth rate of first quarter of 2010 for HDB is 4.06% & private
house is 4.52% which is the highest from 2010 2013, this growth was even higher during 2006
2009 (Thakur, 2014). The average annual growth in prices of HBD & private houses are
approximately 3.5% & 3.3% respectively, then during 2011, the average annual growth rate
comes down to 2.5% for HBD, & 1.75% for private houses, Similarly in 2012, it is 1.6% &
0.60% respectively & finally in 2013, it gets negative in the last two quarters & remain negative
as annual average growth (Thakur, 2014).

b. Cooling Measures
Total Debt Servicing Ratio (TDSR) Framework
The government has introduced nine rounds of property cooling measures from 2009. However,
the measure that finally cooled property prices was the eighth round with the introduction of the
total debt servicing ratio (TDSR) framework on 29th June, 2013.
This ensures that banks take all of a borrowers outstanding debt obligations into account when
granting property loans. The Monetary Authority of Singapore (MAS) expects banks, when
granting new property loans, to ensure that borrowers total monthly repayments do not exceed
60% of monthly income for all non property & property loans (Keen, 2009).
Other refinements include:
a. Applying the higher of current interest rates or a medium-term interest rate of 3.5% for
residential & 4.5% for commercial properties.

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b. Applying a 30% haircut to all variable income such as bonuses & rental income (Keen,
2009).
c. Applying haircut of up to 70% on the value of financial assets pledged to obtain
property loans & amortize this value over four years in order to convert them into
income streams (Keen, 2009).
Loan to Value Limit (LVT)
The LTV is the maximum percentage of the purchase price that is the price agreed upon by
between buyer & seller or valuation price given by the bank, whichever is lower, that can be
borrowed from the bank.
-

80% if you do not have any other outstanding loan. If you are a foreigner without
permanent residence status, some banks might cap at 70% or even 60% (Keen, 2009);

50% if you have one outstanding loan (Keen, 2009);

40% if you have two or more outstanding loans or if you are buying under a company
(Keen, 2009);

If your loan tenure is more than (30) thirty years or the loan period would be beyond the
retirement age of 65 years, these limits are lowered to (Keen, 2009):
-

60% if you do not have any other outstanding loan;

30% if you have one outstanding loan;

40% if you have two or more outstanding loans or if you are buying under a company.

The borrower must be the same person that the one purchasing the property.

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c. Demand and Supply Diagram

The demand & supply curve of loan to value limit overall indicates that government is not
willing to lower property prices. They are working hard to maintain the prices at its current level
as if the prices were to go too much either way; the public will be adversely affected. Referring
to the graph below, the property index is moving horizontally. The market is slowing down, but
prices are not coming down. The sellers are asking higher prices. This is because they have
strong holding power & are in no urgency to sell. And if they sell, they may subject to lesser &
shorter loans on their purchases. With fewer sellers, supply of property in the resale market is
lessen. This will translate to a slow market but definitely not one where prices crumble down
(Icompareloan Editorial Team. 2013).

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Any change in credit condition will have an impact on demand; hence bring change in price or
sales volume. Total Debt Servicing Ratio framework forms a vital component in the financing of
a property purchase. Singaporean purchase residential property through banks either through
loan or mortgage. TBSR ensures that banks take all of a borrowers outstanding debt obligations
into account when granting property loans. The Monetary Authority of Singapore (MAS) also
expects banks, when granting new property loans, to ensure that borrowers total monthly
repayments do not exceed 60% of monthly income for all non property & property loans. It
brings drastic decline in demand of bank loans & credits through mortgages (Icompareloan
Editorial Team. 2013).

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The demand curve in the above diagram clearly indicates a downward sloping trend from 3rd
quarter of 2009 till 4th quarter of 2010, whereas it is climbing alarmingly from 1st quarter to 3rd
quarter of 2009 (Icompareloan Editorial Team. 2013).

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Question 2
A monopoly is a market situation where there is a single seller of product which has no close
substitutes.

a. Monopoly in the context of Singapore

Singapore Post Limited, commonly known as SingPost, is an associate company of Singapore
Telecommunication Limited & Singapore designated Public Postal Licensee which provides
domestic & international postal services (Jannarone, 2007). It also provides logistic services in
both domestic & globally. SingPost also offers other products & services such as act as agency,
offer financial services etc.
Singapore Post Limited was listed on the Singapore Exchange on 13th May, 2003. Singapore
Post is the first Public Postal Licensee. Telecommunication Authority of Singapore granted the
license in 1992. As a Licensee, Singapore Post is empowered to operate in monopoly in postal
services with the exclusive privilege of receiving, collecting & delivering letters & postcards
from one place to another (Jannarone, 2007).
In 2007, the Singapore government, decided to liberalize the market & open it for foreign
competition & seizes the status of SingPost as sole licensee, hence ends its monopoly of about
fifteen years (15). Business analyst believes that still SingaPost will maintain a tight grip on the
overall market despite the new competition.

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b. Compare Monopoly & Perfectly Competitive Market

Determining Price & Quantity in Monopoly & Perfect Competition

In monopoly, profit maximizes where marginal revenue is equal to marginal cost, it gives the
state where a firm is producing quantity that maximizes its profit, but the price is determined by
demand curve, price is obtained based upon what a consumer is willing to pay for that quantity
level determined by the demand curve (ECON 150).

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Profits for the monopolist are obtained by calculating total revenue less total cost, the area
highlighted in green in above diagram. Total revenue is calculated by multiplying optimal price
by optimal quantity & total cost is calculated by multiplying average total cost by optimal
quantity. In the short run, monopoly may earn short run profits or losses, where as in long run,
monopoly maintains long run profits (ECON 150). If long run profits are negative, the firm
would leave the industry & the goods would no longer be produced.

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Firms in perfect competition produces till its marginal cost will become equal to price & that
industry supply is obtained by horizontally adding the marginal cost curves of the firms in an
industry. In equilibrium, the industry supply curve crosses the demand curve. Whereas in
monopoly, it also produces till where its MC curve crosses the demand curve, the difference
between the two is in monopoly its a single firm curve, & in perfect competition it is a sum of
MC of all firms operating in an industry (ECON 150).
Consumer Surplus, Producer Surplus & Dead Weight Loss
In perfect competition, economic surplus which is consumer plus producer surplus is maximized.
The industry is called efficient if it is producing where the price is equal to marginal cost.
Comparatively Where as under monopoly, a monopolist restricts its output to raise price. The
single price monopolist captures a portion of the consumer surplus. Since output is restricted, a
portion of both the consumer & producer surplus is lost. This loss of economic surplus is known
as dead weight loss, that neither enjoyed by both consumer & producer.

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Here in the diagram above, the P1 is price charged by firms in perfect competition & P2 is the
price enjoyed by monopolist firm. It is evident from the diagram above that in perfect
competition, & when price & output are in equilibrium, the consumer & producer surplus is at
maximum (ECON 150).

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c. Second & Third Degree Price Discrimination

A monopoly firm implements second degree price discrimination, when there are two or more
groups of consumers having different willingness to pay, but a monopolist fails to distinguish
which consumer belongs to each group. Second degree price discrimination based on the
quantity consumed.
Example:
There are two groups (A) a high demand group & (B) a low demand group. A monopoly firm
would like to charge a high price to group A & a low price to group - B. But if a firm does this
consumer in group-A claim to be from group-B & everyone will get the low price. The firm
knows that group-A consumers are willing to purchase a higher quantity than consumers of
group-B at the same price (ECON 150). So, it will set a price for group-B that extracts their
entire consumer surplus for a small quantity level. For example $3 dollar for a package of 4 rolls
of tissue paper, but this would leave consumers of group-A with some consumer surplus as they
have a higher demand, a monopolist sets a higher price for a larger package to target consumers
of group-A & charge $5 for a package of 8 rolls of tissue paper. The volume discount encourages
the group-A consumers to buy the larger package & also allows the firm to extract more of their
consumer surplus.
When a monopoly firm cannot perfectly identify & segment consumers based upon individual
demand, but can identify group of consumers that have similar demands & can segment based
upon easily identifiable characteristics such as age, time of purchase, residency, location etc.
Then a monopolist charge different price to different group based on their elasticity of demand.
The more in-elastic the demand - the higher the price. It is called third degree price
discrimination.
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Examples:
1. Movie theaters charge different prices based on the time of consumption & age. The
elasticity of demand for those attending a matinee is more elastic than those during
primetime. So a lower price is charged for the matinee.
2. Airlines also discriminate prices. Those purchasing tickets at least two weeks in advance,
gets a lower price than individuals purchasing tickets a day or two before the flight
(ECON 150).

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Question 3
a. Youth Unemployment Data
Spain
YOUTH POPULATION BY AGE GROUPS & RELATION WITH ECONOMIC
ACTIVITY FROM 2009 2012 (Buck, 2014)

16 - 24

25 - 29

in '000

in '000

2009

2010

2011

2012

2009

2010

2011

2012

Total Population

45,068

4,380

4,267

4,198

3,483

3,306

3,132

3,010

Active

2,242

2,071

1,922

1,772

3,001

2,859

2,716

2,500

Employed

1,387

1,200

1,036

851

2,365

2,156

2,008

1,790

In-Active

2,265

2,309

2,345

2,426

636

703

708

811

Labor market rates

Activity rate

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49.70

47.30

45.10

42.20

86.20

86.50

86.70

86.40

Employment rate

30.80

27.40

24.30

20.30

67.90

65.20

64.10

59.50

Un-employment rate

38.10

42.10

46.10

52.00

21.20

24.60

26.10

31.20

2.40

2.30

2.50

2.30

1.40

1.40

1.50

1.50

Female

27.90

38.40

41.60

49.80

12.80

20.20

24.40

29.30

Male

39.90

43.50

48.20

54.00

22.50

25.80

26.70

32.90

Ratio of youth
employment
to adult un-employment
(30-64)

Youth un-employment
rate by sex

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Since the financial crisis, young spaniards lives have been put on hold. Youth unemployment
stands at 55% as at May, 2014, highest in the EU only after Greece & almost half of under 30s
still live with their parents. As it is evident from the table above the unemployment rate (16-24)
rises from 38.1% in 2009 to 52% in 2012 (Buck, 2014). Similarly the unemployment rate in the
age group (25-29) also indicates upward trend of unemployment rate, it climbed from 21.2% in
2009 to 31.2% in 2012 (Buck, 2014). One in four Spainiards between 18 29 is not in
education, training or employment, one of the highest rate in the developed world (Buck, 2014).
Close to 1.7 million Spaniards under the age of 30 are out of work, with almost 900,000 already
classified as long term unemployed, being jobless for more than one year (Buck, 2014).
Australia
YOUTH UNEMPLOYMENT (Hermant. 2014)

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AUSTRALIA YOUTH UN-EMPLOYMENT RATE DATA FROM 2008 2011

(Hermant. 2014)

From age 15 - 25

2008

2009

2010

2011

8.80%

11.50%

11.50%

11.30%

The latest unemployment numbers as represented by table above indicates that the jobless rate
has declined from a 12 year high in 2011. But for young Australians the unemployment rate is
currently close to 15% (Hermant. 2014). The participation rate for young people has been going
down consistently over time that means fewer youth are in the job market. Finding a job for
youth is getting complex & results in frustration in youth.
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If we see the graphs above, each indicates & pin points that un-employment is on the rise, even
those you are employed are not satisfied with working hours available to them, they want to
work more to afford their living.

Japan

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Un-Employment Rate of Young People in Japan (1989 2005) (WHITE PAPER ON

YOUTH 2006)

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JAPAN YOUTH UN-EMPLOYMENT RATE DATA FROM 2008 - 2011

2002

2003

2004

2005

9.30%

9.80%

9.00%

8.40%

From age 15 25

Youth unemployment rate in Japan increased to 7.20% in June, 2014 from 6.30% in May, 2014.
Youth unemployment rate in Japan averaged 6.94% from 1983 to 2014, reaching an all time high

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of 10.9% in June, 2010 & a record low of 4% in February 1983 (WHITE PAPER ON YOUTH
2006). The above table also indicates that the unemployment rate is on the decline from 2002 to
2005, it is 9.3% in 2002 as compared to 8.4% in 2005 (WHITE PAPER ON YOUTH 2006).
Currently & as per trends for a decade indicates that un-employment in Japan keeps improving &
rate of unemployment is coming down by every passing year.
If you see the diagrams, graphs & picture above, it proves that Japans unemployment rate is the
best & at minimum compared with rest of the world. The Japanese unemployment rate is has
been well below the U.S unemployment rate for the past 20 years, which is considered as Land
of Opportunities. The factors contribute to the lower, more stable Japanese rate are

Large agriculture sector

Larger self-employed sector

Lack of teen unemployment problem

Greater wage & hour flexibility

Above all labor force participation flexibility

b. Type of Un-Employment Facing the Jobseeker

The type of un-employment faced by jobseeker is a mix of structural un-employment & cyclical
un-employment. Structural unemployment is due to structural problems in an economy &
inefficiencies in the labor market. It occurs when a labor market is not able to provide job to
every jobseeker. There is a miss-match between the skills of the unemployed workers & the
skills needed for the jobs that are available (Wagner, 2014). With reference to the appendix, here
the job seeker is the young man, short on skills & experience, & he is part of a job market where
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there are fewer jobs & higher numbers of applicants are available. In such situations, employer
exploits the opportunity & hire skilled & qualified applicant on lower wages & salaries, results in
very bleak chances for the young entrants in the job market.
Again with reference to the Appendix, the young jobseeker is a resident of Greece, which has the
highest un-employment rate in European Union, Greece economy, is also suffering from cyclical
unemployment, where there is not enough aggregate demand in the economy to provide jobs for
everyone who wants to work (Wagner, 2014).

c. Measures Adopted By European Union to Tackle Youth Unemployment

EU recommended launching a Youth Guarantee in every country; it ensures that all young
people up to age of 25 receive a good quality offer of employment, continued education, an
apprenticeship or an internship within four months of leaving formal education or becoming
unemployed. EU agreed to create Youth Employment Initiative (YEI). YEI support countries in
the region facing youth unemployment rates above 25% (European Commission). It will help
youth of the region countries in education, employment, trainings, internship & financial support
to start the business.

d. AD-AS diagram
AD AS MODEL

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If ECB decides to loosen its monetary policy by lowering interest rates, it increases the money
supply in an economy in short run (Wagner, 2014). The increase in money supply results in
increase Gross Domestic Product. In addition, the increase in the money supply will lead to an an
increase in consumer spending, increase in job opportunities & reduction in job unemployment.
As far as resolving the full issue of un-employment, there needed lots of other favorable factors
as well, this government policy facilitates the way towards creating new job opportunities,
increase rates of wages & salaries (Wagner, 2014).

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References

Buck, Tobias. (2014). Spanish youth in crisis. http://www.ft.com/cms/s/2/5908da36-db09-11e38273-00144feabdc0.html#slide0

ECON 150 Economic Principles and Problems Micro.
https://courses.byui.edu/econ_150/econ_150_old_site/lesson_08.htm
European Commission. EU measures to tackle youth unemployment.
http://www.eesc.europa.eu/resources/docs/youth_unemployment_leaflet_en.pdf
Hermant. Norman (2014). Youth unemployment: As bad as it is now, Australia has seen worse.
http://www.abc.net.au/news/2014-09-11/australia-continues-to-struggle-with-youthunemployment/5738060
Icompareloan Editorial Team. (2013). The Pricing Impact of a Change in Down-payment
Amount in Housing Loan. Research and Analysis. http://www.icompareloan.com/resources/thepricing-impact-of-a-change-in-down-payment-amount-in-housing-loan/#!prettyPhoto
Jannarone, John. (2007). SingPost to Lose Its Monopoly. Asian Business News.
http://online.wsj.com/articles/SB117067197325398075
Keen, S. (2009). Household debt: the final stage in an artificially extended Ponzi
bubble. Australian Economic Review, 42(3), 347-357.
http://keenomics.s3.amazonaws.com/debtdeflation_media/papers/aere_560Final.pdf

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Thakur, Pooja (2014). Singapore Housing Purchases Drop as Rates Poised to Rise. Bloomberg.
http://www.bloomberg.com/news/2014-08-13/singapore-housing-purchases-drop-as-ratespoised-to-rise.html
Wagner, B. (2014). Types Of Unemployment. Montana Department Of Labour And Industry,
Research And Analysis Bureau. http://lmiprd.mt.gov/media/9548/art-0214.pdf
WHITE PAPER ON YOUTH 2006 - Part 1 Present State of Youths in Japan.
http://www8.cao.go.jp/youth/english/whitepaper/2006/part1.html

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